Thursday, February 16, 2006

IMF Debt Cleared, Now What?

Zimbabwe yesterday revealed that it had paid off it's debt to the IMF weeks ahead of of the March deadline set by the Bretton Woods institution. The Herald waxes sentimental;

ZIMBABWE has cleared its arrears to the International Monetary Fund (IMF) after the Reserve Bank of Zimbabwe yesterday paid the outstanding US$9 million, casting away speculation that the country could be expelled from the Bretton Woods institution.

The fund’s managing director, Mr Rodrigo de Rato, said in an oral statement to the IMF executive board that he would be withdrawing his complaint against Zimbabwe.

In view of yesterday’s payment, Mr de Rato said the fund would be cancelling the compulsory withdrawal procedure initiated in February 2004 following Zimbabwe’s failure to settle its overdue obligations in the General Resources Account (GRA).

Over the past 13 months, Zimbabwe has repaid US$193 million to clear its outstanding debt on the critical general resources account.

Though the IMF board claimed that Zimbabwe should be expelled for being in protracted arrears since February 2000, nothing has been done against three other African countries — Liberia, Somalia and Sudan — that it said have been in arrears since the mid- 1980s.

On August 24 last year, the IMF revealed that, in addition to Zimbabwe, these three countries were also in protracted arrears.

The IMF said as of June 30 last year; Liberia owed US$512,4 million, Somalia US$224 million and Sudan US$1,057 billion; thus Zimbabwe with US$199,6 million then, owed the least.

The arrears of Liberia, Somalia and Sudan accounted for 90 percent of total arrears, while Zimbabwe accounted for a mere 10 percent.

You know how I feel about the choice Zimbabwe's macro policy makers made to pay off the IMF while the people starve. In the words of Eddie Cross,

I find this whole thing rather nauseous - like the head of a family in a starving village, throwing food over the fence to baboons waiting on the outside, while the children of the village die of hunger, malnutrition and disease. Too stark an image? Just think of what we could have done with that money over the past 5 months - we could have bought enough food and raw materials to resolve all the shortages of basic foods in the country. We could have imported enough liquid fuels to overcome the persistent fuel shortages that are crippling our public transport system and pushing transports costs through the ceiling. We could have satisfied the needs of all our hospitals for disinfectants, cleaning materials, drugs and essential medical supplies.

Instead we go on paying this money to the IMF - they do not want the money, they do not need the money, it does not change our status as a country under threat of its membership because we are not servicing anyone's debt - least of all the IMF and its sister institutions of the World Bank and the African Development Bank.

His main argument is that the IMF foists wrong policies on the rest world while it protects the interests of its major constituency (i.e. the US Treasury). Among his many disagreements with the IMF is the institution’s resiliency in trumping radical establishment of the free markets above all else. Stiglitz is a proponent of the gradual introduction capitalism because, “Capitalism requires a transformation of society.” It’s more than just having the right institutions and infrastructure, the whole structure of society endures critical change when capitalism comes about. Another of his discontents with the IMF in addition to the idea that they constantly seem to be pushing the wrong policies, is the lack of parity and transparency on the IMF’s part. In negotiations with countries seeking help, the IMF dictates requirements instead of listening. Stiglitz also notes that at the same time the IMF advocates for transparency from governments it helps, it is not a very transparent entity itself.

The IMF, which has threatened to expel Zimbabwe from the fund over debt arrears, is shifting its goalposts as part of a drive to punish President Robert Mugabe's government, a state-controlled newspaper said on Sunday.

Zimbabwe says it has been making regular payments to the International Monetary Fund and will clear its crucial arrears before a March deadline set by the fund to pay up or risk expulsion.

The Sunday Mail newspaper said an IMF team now in Harare to review the country's economic problems and programmes had suggested Zimbabwe's difficulties with the fund were not over debt arrears but fiscal and monetary policies and targets.

Interestingly, the IMF has still not yet responded to these charges. The IMF is now faced with the dilemma of either sticking to their malevolent intentions while denying much needed assistance to a bad government that has rendered themselves bustling hereos and the IMF brute villians.

Either way, the the IMF cannot escape tarnishing it's credibility and transparency with this episode. Now what?

*Make no mistake, I'm not defending Mugabe & Co., I just don't think the IMF has been saintly, at least not in it's dealings with Zimbabwe.